Anyone,
I have lurked here for a bit, and am thinking of taking a position. I have a couple of questions, though.
1) The principal one is whether AGP will achieve any significant economies of scale by increasing revenues through acqs. It seems that most of the companies already enjoy near monopolies in their local markets. If these markets do not substantially overlap geographically, then can we expect AGP to be able to cut costs associated with sales significantly, thereby increasing gross margins?
2) If, for argument, economies are not realizable, what are the prospects for internal growth of the existing business? Are the local markets already saturated? Are there exploitable sectors for the business, or even new areas/applications, that the company can move into (i.e., any avenues for value-added endeavors)?
3) How is AGP generally achieving the acqs? It appears from my cursory research that it is a combination of stock and debt. Will they have the cash flow to cover the debt that they feel is necessary to achieve their revenue targets (i.e., several 100M/yr by 2002)? Will dilution, combined with debt servicing, outweigh or balance out any gains from the acqs themselves?
4) Is there any way that the company can even out the seasonality of the ice business? Even in the Southwest (I lived in Arizona for many years), there is very little retail demand for packaged ice for several months over the winter. Can commercial sales be increased to offset this variation in demand?
I admit to all that I have little to no knowledge of the ice business, so these questions are legit for me, and may be of interest to others.
My main concern is that even if AGP grows the top line by 10 times or more in coming years, the big question is whether the bottom line will grow at an even faster pace, which is generally necessary for stock price appreciation in consolidation plays? I am attracted to consolidation plays (I have been in ABTX for awhile, which has been an excellent play on consolidation of the forage and turfgrass sector; see the excellent thread on SI), but for the play to pay off handsomely, the consolidation has to achieve something significantly superior to what is being offered by the fragmented industry itself.
I appreciate any responses!!
Good trading,
Jim L. |
